Barrett, Inc., has a total debt ratio of .61, total debt of $321,000, and net income of $39,750. What is the company’s return on equity?

7.55%

Explanation:

The debt ratio shows the percentage of a company's assets that are provided via debt. It is the ratio of total liabilities to total assets, it is given by the equation:

Debt ratio = total liabilities/total assets

Given that total debt of $321,000, hence the total liability = $321000, and debt ratio = 0.61. Therefore:

Debt ratio = total liabilities/total assets

0.61 = $321000/total asset

total asset = $321000/0.61

total asset = $526230

Net income = $39,750, the company’s return on equity is given by:

Return on equity = Net income / shareholder equity

Return on equity = $39750 / $526230

Return on equity = 0.0755

Return on equity = = 7.55%

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a) both were commissioned explorers